2000 Tax Assessment | Tax Assessment of Yukos Oil by the Russian Federation for the 2000 tax year |
2001 Tax Assessment | Tax Assessment of Yukos Oil by the Russian Federation for the 2001 tax year |
2002 Tax Assessment | Tax Assessment of Yukos Oil by the Russian Federation for the 2002 tax year |
2003 Tax Assessment | Tax Assessment of Yukos Oil by the Russian Federation for the 2003 tax year |
2004 Tax Assessment | Tax Assessment of Yukos Oil by the Russian Federation for the 2004 tax year |
Armenian Branch | A branch of offshore Yukos Oil subsidiaries, headed by Yukos CIS Investments, a limited liability company incorporated in Armenia |
ARSIWA | International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts [2001] 2(2) YB ILC 26 |
ATAs | Advance Tax Agreements |
August 2004 Loan | The August 2004 loan, made to Yukos Oil by Yukos Capital, in the principal amount of USD 355 million |
B Loan | A USD 1.6 billion loan agreement between Yukos Oil. and SG |
Baikal | OOO Baikalfinancegroup, a company incorporated in Tver |
Brill | Brill Management Ltd, incorporated in the BVI |
Brittany | Brittany Assets Ltd |
Brittany Loan | The loan established pursuant to the Brittany Loan Agreement |
Brittany Loan Agreement | Agreement establishing a loan between Brittany (lender) and Yukos Capital (borrower) dated 20 November 2003 |
BVI | The British Virgin Islands |
Claimant / Yukos Capital | Yukos Capital Ltd, formerly Yukos Capital S.à r.l., the Claimant |
Corporate Reorganisation | The changing of the Claimant’s domicile from Luxembourg to the British Virgin Islands, as notified to the Tribunal on 15 January 2018 |
Counter-Memorial | Respondent’s Counter-Memorial on the Merits dated 11 July 2018 |
Cyprus companies | The Cyprus holding companies Dunsley Ltd and Nassaubridge Management Ltd |
Cyprus DTA | Cyprus-Russia Double-Tax Agreement |
December 2003 Loan | The December 2003 loan, made to Yukos Oil by Yukos Capital, in the principal amount of RUB 79.3 billion |
DKW | Dresdner Kleinwort Wasserstein |
DKW Valuation | Valuation of YNG by Dresdner Kleinwort Wasserstein, dated 6 October 2004 |
Dunsley | Dunsley Ltd, incorporated in Cyprus |
ECT / Treaty | Energy Charter Treaty, 1994 |
ECtHR | European Court of Human Rights |
English Judgment | Judgment of 24 June 2005 of the High Court of England and Wales |
Fargoil | OOO Fargoil, incorporated in Mordovia, Russia |
Federal Tax Service | The Federal Tax Service of the Russian Federation |
FET | Fair and equitable treatment |
First Appeal | Claimant’s appeal dated 28 July 2006 of the decision denying its First Bankruptcy Application |
First Bankruptcy Application | Claimant’s application of 27 April 2006 for the inclusion of its claims in the Register of Creditors |
First Cassation Appeal | Claimants cassation appeal dated 27 November 2006 against the suspension of its appeal from the First Bankruptcy Application |
FMV | Fair market value |
Gazprom | OAO Gazprom |
Gazpromneft / Sibneft | OOO Gazpromneft, a subsidiary of Gazprom, formerly Sibneft |
Group Menatep | Group Menatep Ltd, a limited liability company incorporated in Gibraltar |
Giga-dividend | A USD 2 billion dividend issued by Yukos Oil, declared on 28 November 2003 |
Guidelines | World Bank Guidelines on the Treatment of Foreign Direct Investment |
Hearing | The hearing on the merits, held between 1-12 July 2019 in London |
Hearing on Jurisdiction | The hearing on jurisdiction, held between 31 August and 4 September 2015 in The Hague |
Hedgerow | Hedgerow Ltd, formerly Rospan |
Hedgerow Loan | The loan established pursuant to the Hedgerow Loan Agreement |
Hedgerow Loan Agreement | Agreement establishing a loan between Hedgerow (lender) and Yukos Capital (borrower) dated 18 August 2004 |
Hulley Final Awards | The final awards rendered in Hulley Enterprises Ltd (Cyprus) v Russian Federation, Yukos Universal Ltd (Isle of Man) v Russian Federation, and Veteran Petroleum Ltd (Cyprus) v Russian Federation |
Hulley Awards | The interim awards on jurisdiction and admissibility and the final awards rendered in Hulley Enterprises Ltd (Cyprus) v Russian Federation, Yukos Universal Ltd (Isle of Man) v Russian Federation, and Veteran Petroleum Ltd (Cyprus) v Russian Federation |
Hulley Proceedings | The arbitration proceedings in Hulley Enterprises Ltd (Cyprus) v Russian Federation, Yukos Universal Ltd (Isle of Man) v Russian Federation, and Veteran Petroleum Ltd (Cyprus) v Russian Federation |
Interim Award | Tribunal’s Interim Award on Jurisdiction dated 18 January 2017 |
JHV | James Holding Venture Corp, incorporated in the BVI |
Loans | The December 2003 Loan and the August 2004 Loan |
Low-tax regions / LTRs | Jurisdictions within the Russian Federation with lower profit-tax rates |
LTR Subsidiaries | Subsidiaries of Yukos Oil registered in low-tax regions |
Luxembourg DTA | Luxembourg-Russia Double-Tax Agreement |
Memorial | Claimant’s Memorial on the Merits dated 27 October 2017 |
Miwok | Miwok Wealth PIC Ltd, an entity incorporated in the BVI into which Yukos Capital S.à r.l. was merged |
Moonstone | Moonstone Investments Ltd, incorporated in the BVI |
Nassaubridge | Nassaubridge Management Ltd, incorporated in Cyprus |
Nomos | NOMOS Law Office, the firm representing Yukos Capital in the bankruptcy proceeding |
Notice of Arbitration | Notice of Arbitration dated 15 February 2013 |
Parties | The Claimant and the Respondent |
PCA | Permanent Court of Arbitration |
PCIJ | Permanent Court of International Justice |
PO N° 1 | Procedural Order N° 1 dated 24 April 2014 |
PO N° 2 | Procedural Order N° 2 dated 20 January 2015 |
PO N° 3 | Procedural Order N° 3 dated 13 November 2017 |
PO N° 4 | Procedural Order N° 4 dated 18 May 2018 |
PO N° 5 | Procedural Order N° 5 dated 28 September 2018 |
PO N° 6 | Procedural Order N° 6 dated 1 November 2018 |
PO N° 7 | Procedural Order N° 7 dated 10 December 2018 |
PO N° 8 | Procedural Order N° 8 dated 1 April 2019 |
PO N° 9 | Procedural Order N° 9 dated 30 April 2019 |
PO N° 10 | Procedural Order N° 10 dated 30 April 2019 |
Production Subsidiaries | Yukos Oil’s main oil-production subsidiaries, being Yuganskneftegaz, Samaraneftegaz and Tomskneft |
Promneftstroy | OOO Promneftstroy |
Promneftstroy action | Proceedings in the Dutch courts regarding the ability of Yukos Capital to direct its claims pursuant to the Loans against Promneftstroy |
PwC | PricewaterhouseCoopers |
Ratibor | OOO Ratibor, incorporated in Mordovia, Russia |
Rebgun action | Proceedings in the Dutch courts regarding the ownership of Yukos Finance |
Register of Creditors | The three tiers of claims comprising the register of creditors in Yukos Oil’s bankruptcy proceedings |
Rehabilitation Plan | Yukos Oil’s financial rehabilitation plan of June 2006 |
Rejoinder | Respondent’s Rejoinder on the Merits dated 14 May 2019 |
Reply | Claimant’s Reply on the Merits dated 8 January 2019 |
Respondent / Russia / Russian Federation | Government of the Russian Federation, the Respondent |
RFPF | The Russian Federal Property Fund |
Rosneft | Oil Company Rosneft OJSC |
Rospan | Rospan Overseas Ltd, now Hedgerow |
Russia / Russian Federation / Respondent | Government of the Russian Federation, the Respondent |
Second Appeal | Claimant’s appeal dated 18 December 2006 of the decision denying its Second Bankruptcy Application |
Second Bankruptcy Application | Claimant’s application dated 6 October 2006 for the inclusion of its claims in the Register of Creditors |
Second Cassation Appeal | Claimant’s cassation appeal dated 10 April 2007 seeking to reverse the judgments on the Second Bankruptcy Application and the Second Appeal |
Set-Aside Application | Respondent’s application to Swiss Federal Tribunal to set aside the Interim Award |
Sibneft / Gazpromneft | OOO Gazpromneft, a subsidiary of Gazprom, formerly Sibneft |
SN | Samaraneftegaz, one of Yukos Oil’s main oil-production subsidiaries |
Société Générale | Société Générale SA |
Stichting | Stichting Administratiekantoor Yukos International, a foundation incorporated in the Netherlands in 2005 |
Syndicate Loan | A USD 1 billion loan agreement between Société Générale and the Western Banks |
Tax Assessments | The tax assessments of Yukos Oil by the Russian Federation for the 2000-2004 tax years |
Terms of Appointment | Terms of Appointment between the Parties appointing the Tribunal dated 17 February 2014 |
The Hague District Court Judgment | Judgment of The Hague District Court dated 20 April 2016 in Action Nos C/09/477160 / HA ZA 15-1, C/09/477162 / HA ZA 15-2 and C/09/481619 / HA ZA 15-112, in relation to the Hulley Final Awards and the interim awards on jurisdiction and admissibility in the same cases |
TMF | TMF Corporate Services SA, the manager of Yukos Capital |
TN | Tomskneft, one of Yukos Oil’s main oil-production subsidiaries |
Treaty / ECT | Energy Charter Treaty, 1994 |
UNCITRAL Rules | Arbitration Rules of the United Nations Commission on International Trade Law, 1976 |
VAT | Value-added tax |
Western Banks | A consortium of European and North American banks that had granted loans to Yukos Oil, led by Société Générale |
YNG | Yuganskneftegaz, one of Yukos Oil’s main oil-production subsidiaries |
Yukos Capital / Claimant | Yukos Capital Ltd, formerly Yukos Capital S.à r.l., the Claimant |
Yukos CIS | Yukos CIS Investments, a company incorporated in Armenia and the head of the Armenian Branch |
Yukos Finance | Yukos Finance BV, a private limited liability company incorporated in the Netherlands |
Yukos Group | All companies within the Yukos group of companies |
Yukos Hydrocarbons | Yukos Hydrocarbons Ltd, a private limited liability company incorporated in the BVI |
Yukos International | Yukos International UK BV, a private limited liability company incorporated in the Netherlands |
Yukos Oil | Yukos Oil Company OJSC, a joint stock company incorporated in the Russian Federation in 1993 |
Yukos Tax Arrangement | The corporate structure designed by the Yukos Group for purposes of tax optimisation for the profits of Yukos Oil |
ZATOs | Closed Administrative Territorial Formations within the Russian Federation |
Claimant
Mr Cyrus Benson
Ms Ceyda Knoebel
Gibson, Dunn & Crutcher LLP
Mr Daniel Feldman
Party Representative
Respondent
Mr David Sabel
Ms Claudia Annacker
Mr Cameron Murphy
Cleary Gottlieb Steen & Hamilton LLP
Registry
Mr Hanno Wehland
PCA
Court Reporter
Ms Claire Hill
(i) '[t]he Russian Federation never ratified the ECT and applied the ECT until October 18, 2009 on a provisional basis pursuant to Article 45(1) ECT only "to the extent that such provisional application is not inconsistent with its constitution, laws or regulations’";6
(ii) '[t]he intra-company loans allegedly made by Claimant to Yukos Oil Company are not "investments" within the meaning of Article 1(6) ECT’;7 and
(iii) '[s]ince Claimant is a shell company with no substantial business activities in Luxembourg and is ultimately controlled by nationals of a third State, Respondent is entitled to deny Claimant the advantages of Part III of the ECT pursuant to Article 17 ECT.’8
(i) On 28 July 2014, the Respondent filed a Memorial on Jurisdiction, together with an Expert Report of Professor Anton V Asoskov.
(ii) On 3 November 2014, the Claimant filed a Counter-Memorial on Jurisdiction, together with a Witness Statement of Bruce K Misamore and Expert Reports of Professor Paul B Stephan, Stuart B Gleichenhaus, and Professor Justice J H M Willems.
(iii) On 2 March 2015, the Respondent filed a Reply on Jurisdiction, together with a Second Expert Report of Professor Asoskov and Expert Reports of Professor Thomas Z Lys, Lionel Noguera, and Professor Dr Riemert Pieter Jan Lucris Tjittes.
(iv) On 15 June 2015, the Claimant filed a Rejoinder on Jurisdiction, together with a Second Witness Statement of Mr Misamore, further Expert Reports of Professor Stephan, Mr Gleichenhaus, and Professor Willems, and Expert Reports of Professor Stephen E Shay and Andrew Grantham.
Claimant
Mr Cyrus Benson
Ms Penny Madden
Ms Ceyda Knoebel
Mr Piers Plumptre
Ms Sophy Cuss
Mr Sergey Okoev
Gibson, Dunn & Crutcher LLP
Mr David Godfrey
Ms Natalia Kantovich
Ms Sophy Bae
Party Representatives
Mr Bruce K Misamore
Fact Witness
Professor Paul B Stephan
Mr Stuart B Gleichenhaus
Professor Stephen E Shay
Mr Andrew Grantham FCA
Professor Justice J H M (Huub) Willems LLM
Expert Witnesses
Respondent
Dr Claudia Annacker
Mr David G Sabel
Mr Lawrence B Friedman
Mr Matthew D Slater
Mr Larry C Work-Dembowski
Dr Enikő Horvath
Ms Laurie Achtouk-Spivak
Mr Lorenzo Melchionda
Ms Ksenia Khanseidova
Ms Aija Lejniece
Ms Sarah Schröder
Mr Sean McGrew
Cleary Gottlieb Steen & Hamilton LLP
Mr Andrey Kondakov
Party Representative
Mr Jesse Stevenson
Trial Graphic Consultant
Professor Anton V Asoskov
Professor Thomas Z Lys
Professor Dr Riemert P J L Tjittes
Expert Witnesses
Tribunal Assistant
Mr Jack L Wass
Registry
Dr Hanno Wehland
Mr Robert James
PCA
Court Reporter
Mr Trevor McGowan
Interpreters
Ms Irina van Erkel
Mr Sergei Mikheyev
(1) The Respondent’s provisional application of the Energy Charter Treaty under the terms of Article 45(1) does include its consent to international arbitration under Article 26(3)(a) (by majority).
(2) The Claimant does own an asset constituted by a debt of a company associated with an Economic Activity in the Energy Sector in the Area of the Respondent such that it has made an Investment to which the present dispute with the Respondent relates (by majority).
(3) Citizens or nationals of a third State did not control the Claimant on 11 April 2014 when the Respondent sought to deny the Claimant the advantages of Part III of the Energy Charter Treaty, such that the Respondent was not entitled to invoke the provisions of Article 17(1).
(4) The three objections to jurisdiction and admissibility raised by Respondent in its Notice dated 11 April 2014 that the Tribunal set down for determination in a preliminary phase by Procedural Order No 1 dated 24 April 2014 are therefore dismissed (by majority in respect of objections (1) and (2)).
(5) Any other objections to jurisdiction and admissibility are, pursuant to Procedural Order No 1, joined to the merits.
(6) The stay of proceedings on the merits ordered in Procedural Order No 1 is lifted with effect from 28 days following the communication of this Interim Award on Jurisdiction to the Parties.
(7) The Tribunal shall thereafter fix by procedural order, after consultation with the Parties, a revised timetable for further pleadings and a hearing on the merits.
(8) All costs of and occasioned by the hearing of these objections to jurisdiction shall be reserved.10
(i) Article 26 of the ECT cannot be introduced in the Russian legal order through an administrative act and, therefore, cannot be provisionally applied on the international level, and therefore the Tribunal has no jurisdiction ratione temporis; and
(ii) The Claimant cannot be considered as having made an autonomous investment and the Tribunal has no jurisdiction ratione materiae to deal with the case.
(i) Debevoise & Plimpton LLP had been appointed as counsel for the Respondent in these proceedings, to replace Cleary Gottlieb Steen & Hamilton LLP;
(ii) The Respondent had made an application to set aside the Interim Award (the Set-Aside Application) before the Swiss Federal Tribunal and that the latter had issued a Provisional Measures Order for the stay of the present arbitration proceedings; and
(iii) The Respondent was ready to submit a formal application for the stay of the proceedings should the Tribunal so require.
(i) The Claimant consented to the stay of the arbitral proceedings requested by the Respondent; and
(ii) The Parties had agreed that the Tribunal should in the interim be able to rule on the place of the Hearing and the provisional timetable for the procedural phase in the merits, which would only be applicable in the event the Set-Aside Application was rejected.
(i) The case intituling in these proceedings should be amended so that the Claimant’s name shall appear as 'Yukos Capital Ltd (formerly Yukos Capital S.à r.l.)’;
(ii) The Claimant was to provide the reasons for its Corporate Reorganisation and for lack of disclosure thereof at the time it took effect;
(iii) The Respondent should pursue any further request for production of documents on this matter alongside the document production requests on the merits as provided in PO N° 3; and
(iv) The Respondent’s application for security for costs was adjourned pending the completion of the steps set out in (b) and (c) above.
On 11 July 2018, the Respondent filed a Motion to Strike with its Counter-Memorial requesting that the Tribunal strike from the record three sets of arbitral awards on which the Claimant sought to rely, on the ground that these awards had been set aside by the competent court at the place of arbitration in those cases. The three sets of awards were:
(i) Hulley Enterprises Ltd (Cyprus) v Russian Federation, Yukos Universal Ltd (Isle of Man) v Russian Federation, and Veteran Petroleum Ltd (Cyprus) v Russian Federation (the Hulley Final Awards);14
(ii) RosInvestCo UK Ltd v Russian Federation;15 and
(iii) Quasar de Valores et al v Russian Federation.16
Hulley Enterprises Ltd (Cyprus) v Russian Federation, UNCITRAL, PCA Case No AA226, Final Award (18 July 2014) (CL-10, MTS-1); Yukos Universal Ltd (Isle of Man) v Russian Federation, PCA Case No AA227, Final Award (18 July 2014) (MTS-2); Veteran Petroleum Ltd (Cyprus) v Russian Federation, PCA Case No AA228, Final Award (18 July 2014) (MTS-3). When referred to together with the interim awards on jurisdiction and admissibility in each case, the term Hulley Awards is used. See Hulley Enterprises Ltd (Cyprus) v Russian Federation, UNCITRAL, PCA Case No AA226, Interim Award on Jurisdiction and Admissibility (30 November 2009) (CL-9); Yukos Universal Ltd (Isle of Man) v Russian Federation, PCA Case No AA227, Interim Award on Jurisdiction and Admissibility (30 November 2009) (CL-27); Veteran Petroleum Ltd (Cyprus) v Russian Federation, PCA Case No AA228, Interim Award on Jurisdiction and Admissibility (30 November 2009) (CL-26).
(i) Holding that the Parties are at liberty to rely on any of the five contested awards, as well as on related decisions of national courts, as legal authorities, and that the Tribunal will determine the weight to be given to such legal authorities;
(ii) Noting the Claimant’s statement that it does not rely on the Awards as evidence of fact, and that each Party shall bear the burden of proving the facts relied upon to support its pleadings; and
(iii) Joining the Claimant’s plea of collateral estoppel to the merits.
(i) The Claimant’s response to the Respondent’s application for security for costs, dated 1 February 2019 and supplemented with the Claimant’s letter of 5 February 2019;
(ii) The Respondent’s comments on the Claimant’s response, dated 8 February 2019; and
(iii) The Claimant’s response to the Respondent’s comments, dated 15 February 2019.
Tribunal
Professor Campbell McLachlan QC (Chairman)
Mr J. William Rowley QC
Professor Brigitte Stem
Claimant
Mr Cyrus Benson
Ms Penny Madden QC
Ms Ceyda Knoebel
Mr Piers Plumptre
Ms Sophy Helgesen
Ms Sasha Kobyasheva
Mr Theo Tyrrell
Ms Lindsey Schmidt
Mr Paul Evans
Ms Grace Webster
Ms Olga Ivleva
Mr Michael Stewart (via videoconference from Dubai) Gibson, Dunn & Crutcher LLP
Mr David Godfrey (also as fact witness)
Ms Natalia Kantovich
Party Representatives
Ms Kathleen Gregor (expert)
Ms Anastasia Kantovich (translator)
Mr Maarten Drop (counsel to Mr Godfrey)
Other Support Staff
Respondent
Lord Peter Goldsmith QC
Ms Samantha J Rowe
Ms Aimee-Jane Lee
Mr Conway Blake
Ms Ceri Chave
Mr Maxim Osadchiy
Ms Monika Hlavkova
Ms Sonja Sreckovic
Ms Svetlana Portman
Ms Janine Godbehere
Mr Simon Alton
Ms Prasheela Vara
Mr Shaun Brennan
Mr Tom Cornell (via videoconference from Dubai) Debevoise & Plimpton LLP
Mr Anton Garmoza
Mr Andrey Kondakov
Party Representatives
Mr Steven Theede
Mr Bruce K Misamore
Mr Alexey Smirnov
Mr Vladimir Matveevich Dubov
Mr Rudolf Mkhitaryan
Fact Witnesses
Professor Stephen E Shay
Professor Paul B Stephan
Dr Vladimir Gladyshev
Mr Stuart B Gleichenhaus
Mr Howard N Rosen
Expert Witnesses
Mr Tom Almeida
Other Support Staff
Mr Gitas Polivo Anilionis
Fact Witness
Professor Robert J Danon
Professor Danil Vinnitskiy
Mr Andreas Michaelides
Mr Viktor Valentinovich Batsiev
Professor Gennady Aleksandrovich Esakov
Professor Roman Sergeevich Bevzenko
Professor Oleg Romanovich Zaitsev (via videoconference from Dubai)
Mr Valery Knyazev
Expert Witnesses
Tribunal Assistant
Mr Jack L Wass
Registry
Ms Helen Brown
PCA
Court Reporter
Mr David A Kasdan
Interpreters
Ms Irina van Erkel
Ms Tanya Gesse
Mr Yuri Somov
(i) Yukos CIS was incorporated in Armenia as a fully-owned subsidiary of Yukos Oil;
(ii) Its fully-owned subsidiary was Yukos Hydrocarbons Ltd (incorporated in the BVI) (Yukos Hydrocarbons);
(iii) Its fully-owned subsidiary was Brittany Assets Ltd (incorporated in the BVI) (Brittany);
(iv) Brittany owned 10% of the share capital in Brill Management Ltd (incorporated in the BVI) (Brill), the remaining 90% being owned by a trust known as the 'Stephen Trust’;
(v) Brill owned a number of other subsidiaries. Of most relevance for the present dispute are two parallel chains of companies that terminated in Russian trading companies;
i. Brill owned 10% of James Holding Venture Corp (incorporated in the BVI) (JHV),29 which in turn fully owned Dunsley Ltd (incorporated in Cyprus) (Dunsley), which in turn fully owned OOO Ratibor (Ratibor), one of the Yukos trading subsidiaries incorporated in Russia;
ii. Brill fully owned Moonstone Investments Ltd (incorporated in the BVI) (Moonstone), which in turn fully owned Nassaubridge Management Ltd (incorporated in Cyprus) (Nassaubridge) which fully owned OOO Fargoil (Fargoil), another Yukos trading subsidiary incorporated in Russia.
(i) It is common ground that the December 2003 Loan was funded primarily38 from profits of oil trading activities, in particular that had accumulated in Russian subsidiaries (Ratibor and Fargoil) and passed by way of dividends to their Cyprus parents (Dunsley and Nassaubridge), to their parents in the BVI (JHV and Moonstone), then to Brill and finally to Brittany.
(ii) At that point the Parties differ: the Claimant’s evidence is that the loans were also sourced from fixed income debt investments and offshore investments;39 the Respondent submits that the entirety of the loans were derived from Fargoil and Ratibor via Brill (described with Brittany as a 'cash accumulation center’),40 and notes that there was no documentary support for the Claimant’s testimony.41
Interim Award, [330]-[332]; Counter-Memorial, [8], [107]-[109]; Haberman, [3.6.1]; Knyazev, [4.2.2].
(i) It is common ground that part (USD 0.9 billion) of the December 2003 Loan was used to fund part of a USD 2 billion dividend issued by Yukos Oil (the so-called giga-dividend).42 The dividend was declared on 28 November 200343 and the December 2003 Loan was approved by Yukos Oil shortly thereafter.44
(ii) Thus Yukos Oil’s bank statements record a payment of RUB 30.4 billion (USD 1 billion) on 5 December 2003, which the Respondent says represented the share of the dividend due to Hulley, one of the shareholders in Yukos Oil. The same day, Yukos Capital transferred RUB 26.0 billion (USD 0.9 billion) to Yukos Oil under the December 2003 Loan.
(iii) The Parties agree that part of the funds advanced under the December 2003 Loan could also have been used to redeem promissory notes. Beyond this, the record does not confirm how the rest of the December 2003 Loan was applied or how the rest of the giga-dividend was financed.45
(iv) The Claimant says that the giga-dividend was required to implement the merger with Sibneft that had been completed on 3 October 2003, and in particular to achieve a specified debt-equity ratio.46 The Respondent says that this is a pretence and the giga-dividend was an 'asset-stripping tool’.47 The Tribunal returns to this issue below.48
(i) Freezing of Yukos Oil’s accounts in 16 banks;99
(ii) Restriction of Yukos Oil’s rights with respect to its securities;100
(iii) An enforcement fee of 7% of the amount to be collected under the 2000 Tax Assessment (i.e., RUB 6,848,291,175);101
(iv) Seizure of Yukos Oil’s 14.5% stake in Sibneft;102 and
(v) Seizure of Yukos Oil’s shares in its largest production subsidiary YNG.103
(i) A separate cash pool, to be funded mainly from the sale of ancillary and non-core assets, would be created for payment of several claims originating in Russia, including those of tax authorities and YNG;
(ii) The claims arising from the Syndicate Loan and the B Loan (as well as other remaining claims), would be paid through the assets already made subject to attachment by Dutch courts; and
(iii) Yukos Oil would order that none of its subsidiaries pursue any claims against it, removing around USD 13.7 billion in intragroup claims.
(i) On 27 April 2006, the Claimant filed an application with the Moscow Arbitrazh Court to include its claims under the Loans in the Register of Creditors of Yukos Oil (the First Bankruptcy Application).183
(ii) On 1 May 2006, the Federal Tax Service filed its objections to the First Bankruptcy Application.184 This was followed by objections from Rosneft and Mr Rebgun respectively on 23 and 31 May 2006.185
(iii) On 12 July 2006, the Moscow Arbitrazh Court held a hearing on the First Bankruptcy Application.186 A letter from Yukos Oil confirmed its receipt of a Notice of Default from Yukos Capital dated 11 November 2015 and the company’s obligation to repay the Loans early,187 but the Federal Tax Service opposed the First Bankruptcy Application on the ground that the Loans were not yet due.188
(iv) On 19 July 2006, the Moscow Arbitrazh Court dismissed the First Bankruptcy Application.189 On 28 July 2006, the Claimant filed an appeal from that judgment with the Ninth Arbitrazh Court of Appeal (the First Appeal).190
(v) On 8 August 2006, the General Prosecutor’s Office (GPO) initiated a criminal case against the Claimant and its officers;191 conducting a search of the offices of its Moscow attorneys, NOMOS Law Office (Nomos), on 9 August 2006;192 seizing documents there; and interrogating Ms Titievskaya of Nomos on 11 August 2006.193
(vi) On 28 September 2006, the Ninth Arbitrazh Court of Appeal suspended the Claimant’s appeal on the ground of the pending criminal proceedings.194
(vii) On 11 October 2006, the Claimant filed a Second Bankruptcy Application.195 The Federal Tax Service opposed the Second Bankruptcy Application on the same day.196 The Claimant applied in November 2006 for this Application to be heard in the absence of its attorneys on the ground that it was unable to secure legal representation following the criminal investigation of Nomos.197
(viii) The Second Bankruptcy Application was heard on 27 November 2006 and dismissed on 4 December 2006.198 The Claimant’s appeal against that dismissal was filed on 18 December 2006; heard by the Court of Appeal on 15 February 2007 and dismissed on 22 February 2007 (the Second Appeal).199 The Claimant filed a cassation appeal against that decision on 10 April 2007 (the Second Cassation Appeal).200
(ix) Also on 27 November 2006, the Claimant filed a cassation appeal against the suspension of its appeal from the First Bankruptcy Application (the First Cassation Appeal).201
(x) On 17 May 2007, Mr Rebgun filed petitions with the Moscow Arbitrazh Court to invalidate the Loans;202 and then filed a motion on 24 May 2007 to suspend the Second Cassation Appeal on the ground of the pendency of the invalidation proceedings.203
(xi) The Federal Arbitrazh Court granted the suspension on 31 May 2007.204 It also suspended the First Cassation Appeal on 20 July 2007.205 The Claimant petitioned the Court to remedy the circumstances that gave rise to the suspension in October 2007.206 but the Court finally rejected the appeal on 24 October 2007.207
(i) On 27 March 2007, Lot 1 containing Yukos Oil’s remaining 9.44% stake in YNG was sold for USD 7.59 billion to Rosneft’s subsidiary OOO RN-Razvitiye;211
(ii) On 4 April 2007, Lot 2 containing a 20% stake in Gazpromneft and three minor Production Subsidiaries was sold for USD 5.83 billion to OAO EniNeftegaz, a subsidiary of Italian companies Eni and Enel S.p.A. (although the assets ended under the control of Gazprom);212
(iii) On 3 May 2007, Lot 10 containing TN and other Yukos Oil subsidiaries was sold for USD 6.82 billion to Rosneft’s subsidiary OAO Neft-Aktiv;213 and
(iv) On 10 May 2007, Lot 11 containing SN and other Yukos Oil subsidiaries was sold for USD 6.4 billion to Rosneft’s subsidiary OAO Neft-Aktiv.214
(i) That '[t]he Russian Federation never ratified the ECT and applied the ECT until October 18, 2009 on a provisional basis pursuant to Article 45(1) ECT only "to the extent that such provisional application is not inconsistent with its constitution, laws or regulations’";
(ii) That '[t]he intra-company loans allegedly made by Claimant to Yukos Oil Company are not "investments" within the meaning of Article 1(6) ECT’; and
(iii) That, '[s]ince Claimant is a shell company with no substantial business activities in Luxembourg and is ultimately controlled by nationals of a third State, Respondent is entitled to deny Claimant the advantages of Part III of the ECT pursuant to Article 17 ECT.’221
The Tribunal rejected the first and second of these objections by majority, and the third unanimously.
(i) That the Loans were illegal under international law;
(ii) That the Loans were illegal under domestic law;
(iii) That the Claimant does not qualify as a protected investor under Article 1(7) of the ECT in light of its corporate structure and current nationality;
(iv) That the current proceedings are an abuse of process; and
(v) That the Claimant’s claim is excluded by virtue of the tax carve-out in Article 21 of the ECT.
Turning to its substantive objection, the Respondent first submits that the ECT does not protect investments made by host States’ own nationals ('round-trip’ investments), arguing that a proper contextual reading of Article 1(7) in light of the object and purpose of the ECT mandates that its provisions should only be applied to protect investments by foreign investors.226 In relation to context, the Respondent refers to various provisions of the ECT referring only to investors of 'another’ Contracting Party without reference to Article 1(7),227 as well as Article 17 (excluding investments made by third-State nationals from ECT protection), which it submits should apply a fortiori to shell companies owned by nationals of the host State.228 It also refers to an understanding adopted by the ECT Contracting Parties, which envisages a factual determination of 'control’ to ascertain whether an investor is controlled by 'another’ Contracting Party to the ECT.229 It submits that this understanding, along with the other provisions of the ECT referred to, provides contextual support for the interpretation of 'investor’ in Article 1(6) to exclude investors of the host State.230
The Respondent also draws upon the subsequent State practice of a large number of ECT Contracting Parties to submit that 'round-trip’ investments fall outside Article 1(7) of the ECT.238 By way of example, the Respondent points to the EU-Canada Free Trade Agreement between Canada, the European Union, and EU Member States, which excludes shell companies from the scope of treaty protection.239 The Respondent also points towards the 2014 consultation notice to the Transatlantic Trade and Investment Partnership which expressly excludes that shell companies and those without 'substantive business operations in the territory of one of the Parties could qualify as an "investor".’240
The Claimant then responds to the Respondent’s substantive jurisdictional objection, arguing that the Respondent’s interpretation of Article 1(7) is flawed.258 It argues that there is no basis to depart from the ordinary meaning of the provision or to read words into Article 1(7), and that the Respondent’s contextual argument is circular since the provisions it invokes refer the reader back to the definition of investor in Article 1(7).259 It also contends that the reference to the Contracting Parties’ 'understandings’ relates to Article 1(6) of the ECT, which is res judicata by virtue of the Interim Award.260
Since Claimant is a shell company with no substantial business activities in Luxembourg and is ultimately controlled by nationals of a third State, Respondent is entitled to deny Claimant the advantages of Part III of the ECT pursuant to Article 17 ECT.
To be clear, Respondent does not object on the basis of Article 1(7) ECT to the Tribunal’s jurisdiction at this stage.268
During the Hearing, the Respondent confirmed that for the purpose of this phase of the proceedings, it:
(a) Does not object to the Tribunal’s jurisdiction on the ground that Yukos Capital does not qualify as an Investor in terms of Article 1(7).269
Interim Award, [308], citing the above passage from the transcript, emphasis added.
Any other objections to jurisdiction and admissibility are, pursuant to Procedural Order No 1, joined to the merits.270
"Investor" means:
(a) with respect to a Contracting Party:
...
(ii) a company or other organization organized in accordance with the law applicable in that Contracting Party.
In order to advance this claim as a matter of law, the Respondent submits that the Tribunal must look beyond the ordinary meaning of the text of Article 1(7). It refers to a number of material sources that it alleges are relevant to this exercise.
Schreuer et al, The ICSID Convention: A Commentary (2nd ed, 2009) 91-3, citing Vivendi v Argentina II ICSID Case No ARB/97/3, Decision on Jurisdiction (14 November 2005), [61]; CSOB v Slovak Republic ICSID Case No ARB/97/4 (Decision on Jurisdiction) 24 May 1999, [31].
This finding was reached in relation to the Respondent’s jurisdictional objection under Article 17, where 'control’ is expressly stated to be a part of the legal test. As the Tribunal has already found above, it does not bind it or the Parties per se in relation to the Respondent’s present objection under Article 1(7).
The result is that this first limb of the Respondent’s objection under Article 1(7) must fail. In reaching this conclusion, the Tribunal does not neglect the Respondent’s contention that the Claimant’s corporate veil must be pierced in light of Respondent’s allegation that the Claimant was a vehicle for an illegal enterprise. This contention necessarily depends upon a consideration of the facts and matters upon which the allegation of illegality depends, to which the Tribunal will turn in Part VI.C below.
The Respondent claims that the ECT’s taxation carve-out in Article 21 precludes the Claimant’s composite act theory of expropriation.285 In the Respondent’s view, the term 'taxation measures’ in the ECT covers 'the panoply of regulatory activities related to the State’s tax regime and the payment of taxes, including tax legislation, enforcement and collection of taxes.’286 It submits that this interpretation is consistent with the ordinary meaning of the terms 'taxation’ and 'measures,’ as well as with the ECT’s travaux préparatoires.287 According to the Respondent, arbitral tribunals have interpreted the term 'taxation measures’ broadly and have applied a prima facie test when determining whether a taxation carve-out applies to certain measures.288
The Respondent contends that the allegations used by the Claimant to support its expropriation claim relate to taxation measures under the ECT, as they were taken to implement tax laws and therefore fall within the Article 21 carve-out.289 The Respondent specifically refers to: (i) charging Yukos Oil with tax liabilities based on re-assessments; (ii) freezing Yukos Oil’s assets to forestall payment of the alleged tax claims; (iii) threatening the revocation of Yukos Oil’s oil licences; (iv) conducting searches and seizures on Yukos Oil’s operations; (v) conducting the seizure and auction of YNG; (vi) conducting bankruptcy proceedings in respect of Yukos Oil; and (vii) auctioning the remainder of Yukos Oil’s Russian assets.290 According to the Respondent, each of these actions was taken to implement tax laws and therefore falls within the Article 21 carve-out.291
The Respondent submits that Article 21(1) does not require a determination of whether a taxation measure is bona fide.292 It contends that such a determination would be improper given the provision’s aim of preserving States’ sovereign prerogative to conduct fiscal affairs.293 In any event, the Respondent submits that the taxation measures were legitimate, as is the basis for its case on the merits.294
Further, the Respondent contends that the 'claw-back’ in Article 21(5)(a) does not apply to the alleged composite expropriation.295 It distinguishes the term 'taxes’ from 'taxation measures,’ and submits that the difference in wording denotes a difference in scope.296 'Taxes,’ the Respondent argues, are monetary charges imposed by the State,297 which does not extend to executive or judicial measures that administer or enforce such monetary charges.298 To the extent that such an interpretation would create a 'hole’ in the legal regime, the Respondent submits that would be a 'hole’ that the ECT drafters intended to include.299 It therefore contends that the actions referred to by the Claimant fall outside the scope of the 'claw-back’ provision.300
In the alternative, the Respondent submits that the Claimant did not follow the referral mechanism established in Article 21(5)(b)(i),301 contending that the Claimant’s failure to refer the matter to the tax authorities renders its composite expropriation claim inadmissible.302 It argues that the Article’s text and relevant jurisprudence make clear that the referral process is mandatory,303 and contends that the use of the word 'shall’ indicates a legally binding obligation.304 In the event that the Article does contain an exception where the referral to tax authorities would be futile, the Respondent submits that the Claimant has advanced no evidence in this regard.305
The Claimant disputes that Article 21 precludes the Claimant’s claims or the Tribunal’s jurisdiction.306 It argues that Article 21(1) does not provide an absolute, unqualified carve-out from investment protection,307 that the acts complained of in this case are not 'taxation measures’ under Article 21(1),308 and that, even if they could be classified as such, the 'claw-back’ in Article 21(5) would apply.309
The Claimant submits that Articles 21(3) and 21(5) provide that a tax action falls outside the definition of 'taxation measure’ if it is applied in a discriminatory manner, or else is expropriatory or discriminatory.310 To the Claimant, these exceptions demonstrate that the ECT provides investment protection with regard to taxes and contemplates 'independent oversight’ of host-State taxation measures.311